MOSCOW BLOG: Putin's guns and butter plan

MOSCOW BLOG: Putin's guns and butter plan
Before he left for a trip to meet Xi in China, Putin told his top military staff that they need to focus on both guns and butter if Russia is to successfully face down the West. / bne IntelliNews
By Ben Aris in Berlin May 17, 2024

Russian President Vladimir Putin was on a lovefest to China this week as the two continue to move closer together. Xi even offered Putin a bro-hug, something he doesn’t really do. The headline discussions were all about war, BRICS, and the non-aligned ties, which I wrote up. However, I also included a complete list of the delegation that went with Putin.

The CIA missed a trick as if it had shot down all the planes it would have taken out Russia’s entire political and business elite, including most of the oligarchs, stoligarchs and the entire new Cabinet as well. Clearly in addition to the publicly announced agenda there was a helluvalot of business talks going on as well.

From where I sit, Chinese President Xi Jinping has been trying to reduce tensions, but the Chinese, being a practical people, are planning for the worst and just as Washington can’t see Ukraine lose, Beijing can’t see Moscow lose either as that would make China look a lot more isolated. These two are planning for the long-term even if they are not natural allies.

Before he left for China, Putin introduced his new Defence Minister Andrei Belousov to the heads of Russia’s military districts and gave them a very interesting speech.

As I have argued, Belousov’s appointment is as an economic manager and it doesn’t matter that he has no military experience. After the Blitzkrieg phase is over, you win wars by outproducing the other guys. But I have been arguing that Russian military spending ($140bn) is being done in parallel with the expansion of the National Projects ($33bn), which are two sides of the same coin. Putin made this link explicit at this first meeting with the new Defence minister, saying the social investment and development must run in parallel to the military spending: butter is as important as guns. He even explicitly uses the guns and butter expression (оружие и масло).

This is very important as the commentary almost universally assumes that Russia will stagnate as it is investing too much in the military that will undercut the productive investments and so limit growth. But as I have said many times, people keep underestimating the quality of the economic management team and it seems they are already working on a plan to mitigate these, admittedly, very real problems.

And it will probably work. It has so far. Just look at the surprising upgrades Russia’s economic growth forecasts keep getting. It happened last year with the 3.6% growth (the economy was supposed to contract), which everyone then dismissed by the feel-good, “but that’s just a military Keynesianism bump.” But it’s happening again this year with the IMF tripling its outlook for growth to 3.2% recently.

For a “gas station dressed up as a country” it turns out that Russia’s economy is much better run than anyone cares to admit. Russia’s leading companies are in the middle of 1Q24 reporting season and most are putting in healthy profits, not that this is being reported much now international investors are cut off from the markwet.

I think the assumption that Russia’s economy will stagnate so it will be easier to defeat in 2025 is starting to look questionable. And taking all those businessmen and economic chiefs (Belousov and CBR governor Elvia Nabiullina were also on the planes) suggests that China will be deeply involved in this process. We also looked at this in a piece on Putin’s big bet on the global south century.

Pushing Beijing and Moscow was a major foreign policy blunder.